Bid for perfection: Q&A on Singapore's new restructuring framework

Author: | Published: 16 Jul 2018

Please enter a maximum of 5 recipients. Use ; to separate more than one email address.

Recipient email(s):

Recipient name(s):

Email yourself a copy?

The Supreme Court of Singapore’s
Justice Aedit Abdullah discusses the country’s
recent overhaul of its restructuring and insolvency
framework

In May 2017 Singapore implemented a major overhaul and
update of its restructuring and insolvency (R&I) regime via
amendments to the Singapore Companies Act. The new framework
aims at nothing less than to position Singapore as a foremost
international centre for cross-border R&Is. At the very
least, it has undoubtedly stolen a march on its Asian
rivals.

The new regime drew inspiration from restructuring
frameworks worldwide, among other things incorporating the US
Chapter 11 debtor-in-possession (DIP) regime. Other key changes
seek to open Singapore up to foreign companies, enhance
mechanisms for extra-territorial moratoria and offer
sophisticated scheme of arrangement tools for cram-downs, DIP
financing and pre-packs.

IFLR speaks with Justice Aedit Abdullah, a former prosecutor
turned High Court judge who has handled many of Singapore's
most important recent insolvency cases, about the new regime,
its importance and some of the questions that have been raised
about the new regime by critics.

How important for the Singapore business law community is
it to have a globally competitive restructuring and insolvency
legal regime?

We recognise the importance of R&I work, not just
domestically but also regionally. Given the scale of corporate
investment and activity, it is inevitable that even in the best
of times, corporations are likely to pursue restructuring for
various ends. With a well-regarded R&I legal regime, law
practices can expect more restructuring work from the region.
There are also ramifications for the Singapore business law
community at large. All too often corporate restructuring is
associated only with the demise of a business. But a
competitive R&I regime is one that seeks to keep deserving
businesses a going concern and injects a sense of economic
optimism in the business community. Law is an ancillary
service. If businesses do well, then the legal industry, as a
whole, stands to benefit.

A sound and progressive legal regime is essential to ensure
the continued relevance of Singapore as a financial and
business centre in Asia, which in turn will help ensure that
the legal profession in Singapore continues to do well.

Is there a risk that the changes that have been brought in
are too debtor-friendly?

While we are aware that there is a perception among some
that the changes tilt towards the debtor, a close examination
of the statutory regime will show that we strive for an
appropriate balance with sufficient safeguards to protect the
interests of creditors and the various stakeholders. Conditions
similar to those ordered in Chapter 11 proceedings may be
imposed on moratoria. The court may also in an appropriate case
consider the appointment of a chief restructuring officer to
help monitor the restructuring efforts. In addition to the
statutory requirements, the courts have introduced a number of
measures intended to protect the interests of these creditors
and stakeholders. Such measures include robust case management
even after initial orders are made and require cost schedules
for most cases.

What type of case prompted the inclusion of super-priority
rescue (DIP) financing provisions?

It might be useful to first explain the broad contours of
DIP financing in Singapore. As regards fresh unsecured rescue
loans, such loans enjoy priority over other unsecured claims
and administrative expenses claims when it comes to the
distribution of unsecured assets. As regards fresh secured
rescue loans, super-priority liens may be granted by the court
to allow the fresh funds to rank ahead of other existing
secured loans.

The introduction of DIP was not in response to a specific
case. What prompted it was an appreciation that we needed to
give more tools to allow rescues to be effected, noting in
particular that without a rescue financing regime, it would be
very hard to attract new funds to assist companies in
difficulties. The DIP regime that was introduced is modelled
after the US regime and seeks to strike the right balance
between conferring benefit and reward for the new financing on
the one hand, and safeguarding the interests of prior creditors
on the other.

What do Singapore courts have to do to make its new R&I
regime robust and attractive for companies, come what may?

The recent changes to the R&I regime, as well as the
greater ease of re-domicilation, have established the necessary
mechanisms. Companies the world over are waiting to see how the
courts decide the cases that come up. What we need to do is to
demonstrate that it works. So, the courts have, where possible,
issued judgments even in the absence of appeals, to allow
observers to understand the approach taken. We hope this helps
to provide certainty. We are also exploring a number of
mechanisms, including fast-tracking appeals, to build up our
jurisprudence.

We are mindful of commercial sensitivity and strive to have
our cases progress to resolution as promptly as possible. We
have a number of other initiatives under consideration which we
hope to roll out fairly soon.

What considerations are being debated when it comes to
recognition of Singapore's jurisdiction in cases? For example,
the new laws imply significant international reach particularly
on the question of moratoria, how can this be enforced?

The international effect of our moratoria will ultimately be
visited upon parties actually present in Singapore, or which
have assets in Singapore. If Singapore was chosen as the
fori, and given that we are a financial centre, this
is likely to be the case.

In terms of enforcement generally, we are a party to the
Model Law. This facilitates recognition of restructuring
activities of businesses in other jurisdictions. Further we
have developed our rules of common law recognition along the
lines of recognising the jurisdiction of other courts in a
broad range of instances. This shows our commitment to a
modified universalist approach, which we hope will encourage
greater cross-border cooperation. We are supportive of
international efforts to place cross-border enforcement on a
firmer footing.

How flexibly should a substantial connection with Singapore
be weighed by Singapore courts?

The requirement of substantial connection with Singapore has
been a feature of our law for some time. The amendments brought
in specific examples of such substantial connection: a foreign
company whose centre of main interest is in Singapore; a
company which is carrying on business in Singapore or has a
place of business in Singapore; a company with substantial
assets in Singapore; and a company which has chosen Singapore
law as the governing law of a loan or transaction.

I think other possibilities that may be raised for
consideration could include being listed on our local stock
exchange, whether primary or otherwise; or where securities are
marketed to the Singapore retail investors. The essential focus
is on requiring something more than a tenuous link; I do not,
for the moment, see the courts taking an overly strict
approach.

Where do the Singapore courts currently fall in debates
over valuation and where part autonomy in proceedings should
give way to the need to collective procedures?

We recognise the difficulties in valuation. There is
something to be said for the US approach in giving primary
weight to the going concern value, given the difficulties in a
conclusive determination of market value, especially for a
business that has failed or is on the verge of failure. Market
value in such situations is really market value for the
liquidated assets. Where a scheme of arrangement is being
pursued, with a view to the resuscitation of a company, rather
than say, judicial management, using the liquidation value may
not be appropriate. Subject to arguments in court, I would
venture to say that our courts would probably be willing to
consider the use of going concern values instead.

There is much to be said for giving effect to party
autonomy, save where significant social interests, such as
employees' rights, are at stake. This would mean that
generally, parties may for instance, seek appropriate
re-domiciliation, with little interference, unless it is being
pursued to evade obligations owed to employees for instance or
to frustrate claims by say, third party victims of a tort
committed by the corporation.

What features of the new R&I regime has so far been
tested in live cases?

We have had several cases on section 211B applications,
moratoria, super-priority financing and recognition. For
instance, in Re: Empire Capital Resources, the Court
made some observations on a moratorium sought in respect of
foreign proceedings outside Singapore and section 211B of the
Companies Act. An application for super-priority financing also
came before the Court in Re Attilan Group. What is
perhaps of note in Re Attilan Group is the
consideration of US case law to interpret the section 211E of
the Companies Act. As regards the recognition of foreign
insolvency proceedings, the Court in Re: Zetta Jet Pte Ltd
and ors was faced with an application for recognition by
an interim trustee acting in Chapter 7 proceedings in
California.

Justice Aedit Abdullah was appointed judicial
commissioner in 2014 and High Court Judge on September
30 2017.

Justice Abdullah obtained a bachelor of laws (first
class honours) from the National University of
Singapore (NUS) in 1994, as well as a bachelor of civil
law (first class) from the University of Oxford and a
master in public management from NUS in 2007.

He joined the Singapore Legal Service in 2000 and
began his career as a Justices' law clerk. He then
taught at the Faculty of Law, NUS, before re-joining
the Singapore Legal Service. He has held various
appointments, such as deputy public prosecutor, deputy
senior state counsel and district judge of the
Subordinate Courts (renamed as State Courts in
2014).

He was appointed chief prosecutor (economic crimes
and governance division) and subsequently chief
prosecutor (criminal justice division) at the attorney
general's chambers in 2011 and served as special
counsel at the Monetary Authority of Singapore from
January 2008 to June 2009. He was appointed senior
counsel in 2012.